[Federal Register Volume 63, Number 215 (Friday, November 6, 1998)]
[Notices]
[Pages 60030-60032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29784]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23515; 812-10554]
Ranson & Associates, Inc., et al.; Notice of Application
November 2, 1998.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from sections
2(a)(32), 2(a)(35), 14(a), 19(b), 22(d), and 26(a)(2) of the Act and
rules 19b-1 and 22c-1 under the Act, and under section 11(a) of the Act
for an exemption from section 11(c) of the Act.
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SUMMARY OF APPLICATION: Applicants request an order to permit certain
unit investment trusts (``UITs'') to: (a) impose sales charges on a
deferred basis and waive the deferred sales charges in certain cases;
(b) conduct certain offers of exchange of units; (c) publicly offer
units without requiring the sponsor of the UIT to take for its own
account or place with others $100,000 worth of units; and (d)
distribute capital gains resulting from the sale of portfolio
securities within a reasonable time after receipt.
APPLICANTS: Ransom & Associates, Inc. (the ``Sponsor''), The Random
Municipal Trust-Multi-State Series, Ranson Unit Investment Trusts
(formerly, EVEREN Unit Investment Trusts), The Kansas Tax-Exempt Trust,
Kemper Tax-Exempt Income Trust, Ohio Tax-Exempt Bond Trust, Kemper
Government Securities Trust, Kemper Bond Enhanced Securities Trust, any
future UIT sponsored by the Sponsor (collectively, the ``Trusts''), and
their respective series (each, a ``Series'').\1\
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\1\ Any future Trust that relies on the relief will comply with
the terms and conditions of the application.
FILING DATES: The application was filed on March 7, 1997, and amended
on July 30, 1997. Applicants have agreed to file an amendment to the
application, the substance of which is incorporated in this notice,
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during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 24,
1998, and should be accompanied by proof or service on applicants in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of the date of a hearing may request notification by
writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549.
Applicants, 250 N. Rock Road, Suite 150, Wichita, KS 67206.
FOR FURTHER INFORMATION, CONTACT: Lawrence W. Pisto, Senior Counsel, at
(202) 942-0527, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. Each Series will be a series of one of the Trusts, each a UIT
registered under the Act. The Sponsor will be the sponsor of the
Trusts. Each Series is created by a trust indenture among the Sponsor,
an evaluator, and a banking institution or trust company serving as
trustee (the ``Trustee'').
2. The Sponsor acquires a portfolio of securities, which it
deposits with the Trustee in exchange for certificates representing
units of fractional undivided interests in the portfolio (``Units'').
The Units are offered to the public by the Sponsor, underwriters, and
dealers at a price which, during the initial offering period, is based
upon the aggregate market value of the underlying securities plus a
front-end sales charge. The sales charge currently ranges from 1% to
4.9% of the public offering price. The maximum charge usually is
subject to reduction in compliance with rule 22d-1 under the Act under
certain stated circumstances disclosed in the prospectus, such as for
volume purchases.
3. The Sponsor maintains a secondary market for Units, and
continually offers to purchase these Units at prices based upon the bid
side evaluation of the underlying securities. Investors may purchase
Units on the secondary market at the current public offering price plus
a front-end sales charge. If the Sponsor discontinues maintaining such
a market at any item for any Series, holders or Units (``Unitholders'')
of such a Series may redeem their Units through the Trustee.
A. Deferred Sales Charge (``DSC'') and Waiver of DSC Under Certain
Circumstances
1. Applicants request an order to the extent necessary to permit
them to impose a DSC, and waive the DSC under certain circumstances.
Under applicants' proposal, a portion of the DSC would be collected
``up front,'' i.e., at the time an investor purchases Units, and the
balance would be collected subsequently in equal installments
(``Installment Payments'') from Unitholders' distributions on the
Units. The Trustee will withdraw the Installment Payment from the
distribution income and pay the amount
[[Page 60031]]
directly to the Sponsor. If distribution income is insufficient to pay
an Installment Payment or if a Series' portfolio consists of non-income
producing securities, the Trustee will have the authority to sell
portfolio securities in an amount necessary to pay the Installment
Payment.
2. When a Unitholder redeems or sells Units, the balance of the
Unit holder's Installment Payments on the redeemed Units will be
deducted from the proceeds of the redemption or sale. When calculating
the amount due, it will be assumed that Units on which the DSC has been
paid in full are redeemed first. With respect to Units on which the DSC
has not been fully paid, the DSC will be applied on the assumption that
Units held for the longest time are redeemed or sold first. Under
certain circumstances, the Sponsor may waive the DSC in connection with
redemptions or sales of Units. These circumstances will disclosed in
the prospectus for the relevant Series and implemented in accordance
with rule 22d-1 under the Act.
3. Each Series offering Units subject to a DSC will include in its
prospectus the disclosure required in Form N-1A relating to deferred
sales charges, modified as appropriate to reflect the differences
between UITs and open-end investment companies. The prospectus will
state the maximum amount of DSC per Unit. The prospectus also will
disclose that portfolio securities may be sold to pay the DSC if
distribution income is insufficient to pay the DSC, and that the
securities will be sold pro rata or that a specific security will be
designated for sale.
B. Exchange Option and Rollover Option
1. Applicants request an order to the extent necessary to permit
Unitholders of a Series to exchange their Units for Units of another
Series (the ``Exchange Option''), and Unitholders of a Series that is
terminating (each, a ``Rollover Series'') to exchange their Units for
Units of a new Series of the same type (the ``Rollover Option''). The
Exchange Option and Rollover Option would apply to all exchanges of
Units sold with a front-end sales charge or a DSC.
2. A Unitholder who purchased Units under the Exchange Option or
Rollover Option would pay a lower sales charge than that which would be
paid for the Units by a new investor. The reduced sales charge imposed
will be reasonably related to the expenses incurred in connection with
the administration of the DSC program, which may include an amount that
will fairly and adequately compensate the Sponsor and the participating
underwriters and brokers for their services in providing the DSC
program.
3. Pursuant to the Exchange Option, an adjustment would be made if
Units of any Series are exchanged within five months of their
acquisition for Units of a Series with a higher sales charge (the
``Five Months Adjustment''). An adjustment also would be made if Units
on which a DSC is collected are exchanged for Units of a Series that
imposes a front-end sales charge and the exchange occurs before the DSC
collected at least equals the per Unit sales charge on the acquired
Units (the ``DSC Front-End Exchange Adjustment''). If an exchange
involves either the Five Months Adjustment or the DSC Front-End
Exchange Adjustment, the Unitholder would pay the greater of: (a) the
reduced sales charge, or (b) an amount which, together with the sales
charge already paid on the exchanged Units, equals the normal sales
charge on the Units of a Series being acquired (the ``Exchange
Series'') on the date of the exchange. With appropriate disclosures,
the Sponsor may waive such payment. Further, the Sponsor would reserve
the right to vary the sales charge normally applicable to a Series,
vary the charge applicable to exchanges, and modify, suspend, or
terminate the Exchange Option or Rollover Option as set forth in the
conditions to the application.
Applicants' Legal Analysis
A. DSC and Waiver of DSC
1. Section 4(2) of the Act defines a ``unit investment trust'' as
an investment company which ``issues only redeemable securities.''
Section 2(a)(32) of the Act defines a ``redeemable security'' as a
security which, upon its presentation to the issuer, entitles the
holder to receive approximately his or her proportionate share of the
issuer's current net assets or the cash equivalent of those assets.
Rule 22c-1 under the Act requires that the price of a redeemable
security issued by a registered investment company for purposes of
sale, redemption, and repurchase be based on the security's current net
asset value (``NAV''). To the extent that an Installment Payment may be
deemed to cause Unitholders to receive less than NAV upon redemption,
applicants request relief from section 2(a)(32) and rule 22c-1.
2. Section 22(d) of the Act and rule 22d-1 under the Act require an
investment company and its principal underwriter and dealer to sell
securities only at the current public offering price described in the
investment company's prospectus, with the exception of sales of
redeemable securities at prices which reflect scheduled variations in
the ``sales load.'' Section 2(a)(35) defines the term ``sales load'' as
the difference between the sales price and the portion of the proceeds
invested by the depositor or trustee. Applicants request relief from
sections 2(a)(35) and 22(d) to the extent that the DSC may be paid in
installments rather than upon purchase.
3. Under section 6(c), the SEC may exempt classes of transactions,
if and to the extent that such exemption is necessary or appropriate in
the public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act.
4. Applicants state that their proposal meets the standards of
section 6(c). Applicants state that the provisions of section 22(d),
rule 22d-1, and section 2(a)(35), taken together, are intended to
prevent (i) riskless trading in investment company securities due to
backward pricing, (ii) disruption of orderly distribution by dealers
selling shares at a discount, and (iii) discrimination among investors
resulting form different prices charged to different investors.
Applicants assert that the proposed DSC program will present none of
these abuses. Applicants contend that the deduction of the Installment
Payments is consistent with the policy of forward pricing. Applicants
also contend that the amount, computation, and timing of the DSC will
promote fair treatment of all Unitholders, while permitting the Trusts
to offer Unitholders the advantage of having a large portion of their
purchase amount invested immediately. Applicants further note that the
DSC program will be disclosed in the prospectus of each Series and
available on the same terms to all investors. Finally, applicants state
that any waiver of the DSC will be disclosed in the prospectus of each
Series and implemented in accordance with rule 22d-1.
5. Section 26(a)(2), in relevant part, prohibits a trustee or
custodian of a UIT from collecting from the UIT as an expense any
payment to the trust's depositor or principal underwriter. Because the
Trustee's payment of the DSC to the Sponsor may be deemed to be an
expense under section 26(a)(2)(C), applicants request relief under
section 6(c) from section 26(a)(2) to the extent necessary to permit
the Trustee to collect DSC payments and disburse them to the Sponsor.
Applicants submit that the relief is appropriate because the DSC is
more properly characterized as a sales load than as an ``expense.''
[[Page 60032]]
B. Exchange Option and Rollover Option
Section 11(a) and (c) of the Act prohibit any offer of exchange by
a registered UIT for the securities of any other investment company on
any basis other than the relative NAV of the securities to be
exchanged, unless the terms of the offer have been approved in advance
by the SEC or meet the requirements of any rules adopted to regulate
exchange offers. Applicants request an order under section 11(a) for an
exemption from section 11(c) to permit the Exchange Option and the
Rollover Option. Applicants state that the Five Months Adjustment and
the DSC Front-End Exchange Adjustment in certain circumstances are
appropriate in order to maintain the equitable treatment of various
investors in each Series.
C. Net Worth Requirement
1. Section 14(a) of the Act requires in substance that investment
companies have $100,000 of net worth prior to making a public offering.
Applicants state that each Series would comply with this requirement
because the Sponsor will deposit substantially more than $100,000 of
debt or equity securities or a combination thereof, depending on the
objective of the particular Series. Applicants assert, however, that
the SEC has interpreted section 14(a) as requiring that the initial
capital investment in an investment company be made without any
intention to dispose of the investment. Applicants state that, under
this interpretation, a Series would not satisfy section 14(a) because
of the Sponsor's intention to sell all the Units of the Series.
2. Rule 14a-3 under the Act exempts UITs from section 14(a) if
certain conditions are met, one of which is that the UIT invest only in
``eligible trust securities,'' as defined in rule 14a-3. Applicants
state that they may not rely on rule 14a-3 because certain future
Series (collectively, the ``Equity Series'') will invest all or a
portion of their assets in equity securities, which do not meet the
definition of eligible trust securities.
3. Applicants request an exemption under section 6(c) from section
14(a) to the extent necessary to exempt the Series from the net worth
requirement in section 14(a). Applicants state that they will comply in
all respects with rule 14a-3, except that the Equity Series will not
restrict their portfolio investments to eligible trust securities.
D. Capital Gains Distribution
1. Section 19(b) of the Act provides that a registered investment
company may not, in contravention of such rules, regulations, or orders
as the SEC may prescribe, distribute long-term capital gains more than
once every twelve months. Rule 19b-1(a) under the Act permits a
registered investment company, with respect to any one taxable year, to
make one capital gains distribution, as defined in section 852(b)(3)(C)
of the Internal Revenue Code of 1986, as amended (the ``Code''). Rule
19b-1(a) also permits a supplemental distribution to be made pursuant
to section 855 of the Code not exceeding 10% of the total amount
distributed for the year. Rule 19b-1(f) permits one additional long-
term capital gains distribution to be made to avoid the excise tax
under section 4982 of the Code. Rule 19b-1(c), under certain
circumstances, excepts a UIT investing in ``eligible trust securities''
(as defined in rule 14a-3) from the provisions of rule 19b-1. Because,
as noted above, the Equity Series will not limit their investments to
``eligible trust securities,'' they will not qualify for the exemption
in paragraph (c) of rule 19b-1.
2. Applicants request an exemption under section 6(c) from section
19(b) and rule 19b-1 to the extent necessary to permit capital gains
earned in connection with the sale of portfolio securities to be
distributed to Unitholders along with the Equity Series' regular
distributions. In all other respects, applicants will comply with
Section 19(b) and rule 19b-1.
3. Applicants state that their proposal meets the standards of
section 6(c). Applicants assert that any sales of portfolio securities
would be triggered by the need to meet Series expenses, DSC
installments, or by requests to redeem Units, events over which the
Sponsor and the Equity Series do not have control. Applicants further
state that reports to Unitholders that will accompany each distribution
pursuant to rule 19b-1 will disclose the sources of the distribution.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
A. DSC and Waiver of DSC
1. Each Series offering Units subject to a DSC will include in its
prospectus the disclosure required in Form N-1A relating to deferred
sales charges, modified as appropriate to reflect the differences
between UITs and open-end investment companies.
2. Any DSC imposed on Units issued by a Series will comply with the
requirements of rule 6c-10(a) (1) through (3) under the Act.
B. Exchange Option and Rollover Option
1. Whenever the Exchange Option or Rollover Option is to be
terminated or its terms are to be amended materially, any holder of a
security subject to that privilege will be given prominent notice of
the impending termination or amendment at least 60 days prior to the
date of termination or the effective date of the amendment, provided
that: (a) no such notice need be given if the only material effect of
an amendment is to reduce or eliminate the sales charge payable at the
time of an exchange, to add one or more new Series eligible for the
Exchange Option or Rollover Option, or to delete a Series that has
terminated; and (b) no notice need be given if, under extraordinary
circumstances, either (i) there is a suspension of the redemption of
Units of the Exchange Series or Rollover Series under section 22(e) of
the Act and the rules and regulations promulgated under the Act, or
(ii) an Exchange Series or Rollover Series temporarily delays or ceases
the sale of its Units because it is unable to invest amounts
effectively in accordance with applicable investment objectives,
policies and restrictions.
2. An investor who purchases Units under the Exchange Option or
Rollover Option will pay a lower sales charge than that which would be
paid for the Units by a new investor.
3. The prospectus of each Series and any sales literature or
advertising that mentions the existence of the Exchange Option or the
Rollover Option will disclose that the Exchange Option and Rollover
Option are subject to modification, termination or suspension, without
notice except in certain limited cases.
C. Net Worth Requirement
Applicants will comply in all respects with the requirements of
rule 14a-3, except that the Equity Series will not restrict their
portfolio investments to ``eligible trust securities.''
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-29784 Filed 11-5-98; 8:45 am]
BILLING CODE 8010-01-M